DAIKEN CO.,LTD.

The Company's business activities depend almost entirely on the domestic market and are significantly affected by trends in the construction and residential building markets. A decline in public investment or corporate capital expenditure, and a contraction in housing demand due to population and household declines associated with the falling birthrate and aging population, may affect the Company's business results and financial condition. While the Company strives to expand its business domain through new product development and new proposals for product applications, its structurally high dependence on the domestic market continues.

Prices of key materials such as aluminum, stainless steel, and steel are affected by market fluctuations, and during the fiscal year under review, elevated material prices pushed up procurement costs. If speculative market fluctuations or supply chain disruptions due to geopolitical risks occur, this could lead to increased costs such as material costs and cost of sales. The Company is addressing this by building a flexible supply system with a wide range of procurement sources and through appropriate price negotiations with customers.

The Company conducts transactions denominated in U.S. dollars for overseas procurement of certain raw materials and for product exports to overseas customers, and fluctuations in exchange rates affect net sales, profit, and cash flows. During the fiscal year under review, the exchange rate moved significantly toward yen depreciation, resulting in increased costs including material costs. The Company strives to build a stable trading system by securing a wide range of procurement sources and promoting transactions at appropriate prices.

Sales to Sugita Ace Co., Ltd. account for approximately 20% of total sales, indicating a high degree of dependence on a specific customer. If this customer undergoes a sudden change in business policy or a deterioration in business performance, it could directly affect the Company's business results and financial condition, including its net sales and the valuation of trade receivables. While the Company strives to acquire a broad customer base by providing products that meet diverse needs, continuous efforts are required to resolve this dependence structure.

The Company is subject to regulations concerning exhaust, wastewater, and waste disposal in production activities, business licensing for construction and other operations, and laws and regulations such as the Antimonopoly Act, the Subcontract Act, and tax laws. Failure to comply with these could result in the revocation of business licenses, suspension from bidding, payment of fines, or other penalties. The Company continuously builds a compliance promotion structure and conducts education and awareness activities for all officers and employees to raise awareness.

There is a possibility that applications for patents related to products and technologies may not be granted, resulting in a failure to obtain rights protection, or that the Company may be sued by a third party for infringement of intellectual property rights. In such cases, substantial litigation-related costs may be incurred, and restrictions on the use of intellectual property rights may arise, affecting business results and financial condition. The Company pays attention to protecting its own intellectual property rights and preventing infringement of third-party rights, but complete avoidance is difficult.

The Company owns many fixed assets, including production machinery and equipment at each factory, as well as warehouses, land, and buildings. If profitability declines significantly due to changes in the business environment, appropriate impairment processing may be required. The implementation of impairment processing may directly affect business results and financial condition. The Company strives to secure appropriate profitability through ongoing efforts to improve productivity.

The Company has established and operates a quality control system under the ISO9001 quality management system, and has taken out product liability insurance for product liability compensation; however, unforeseen circumstances could result in product defects or recalls. If the product liability insurance does not cover certain events or is insufficient to cover compensation amounts, this could lead to substantial claim-related costs and a decline in sales. The Company addresses this through the continuous development and operation of its quality control system.

To protect the personal information and confidential information of customers and general users, the Company promotes the development of internal management systems, guidance for outsourced contractors, and security education for employees; however, unforeseen events could cause website communication failures or information leakage. If information leakage occurs, a decline in trust leading to reduced sales and the occurrence of liability for damages could affect business results and financial condition.

Natural disasters such as earthquakes and storm/flood damage, as well as accidental disasters such as fires, could cause harm to employees and damage to buildings and equipment, significantly impeding the production system and business activities. In addition, the risk exists that a pandemic of an infectious disease for which no established treatment exists could worsen economic conditions and suspend part of the Company's operations, making smooth business operations difficult. The Company addresses this through the establishment of disaster response guidelines, enrollment in comprehensive corporate property insurance, promotion of digitalization of internal operations, and the establishment of a stable production system.